R00451
PENSION SCHEMES ACT 1993, PART X
DETERMINATION BY THE DEPUTY PENSIONS OMBUDSMAN
Applicant / : / Mr D NorthmoreScheme/Policy / : / Scottish Equitable (European Aviation) Group Personal Pension
Respondents / : / AEGON Scottish Equitable (Scottish Equitable) (as Managers)
Rhys Francis & Partners (now Lorica) (as Administrators)
MATTERS FOR DETERMINATION
1. Mr Northmore has complained that:
1.1. Scottish Equitable failed to exercise its discretion properly in the distribution of the transferred-in non-protected rights element of his father’s death benefits.
1.2. Scottish Equitable failed to notify his father that it was possible to make a nomination in respect of the pension benefits payable under the Scheme.
1.3. Scottish Equitable failed to provide his father with an appropriate nomination form.
1.4. Scottish Equitable misled his father into thinking that the nomination form he had completed dealt with pension as well as lump sum benefits.
1.5. Lorica failed to carry out his father’s instructions in respect of his death benefits.
2. Some of the issues before me might be seen as complaints of maladministration while others can be seen as disputes of fact or law and indeed, some may be both. I have jurisdiction over either type of issue and it is not usually necessary to distinguish between them. This determination should therefore be taken to be the resolution of any disputes of fact or law and/or (where appropriate) a finding as to whether there had been maladministration and if so whether injustice has been caused.
MATERIAL FACTS
Trust Deed and Rules
3. Relevant extracts from the Scheme documents are set out in an appendix to this document.
Background
4. Mr Northmore’s father, Mr P Northmore (P), was a member of the Scheme. He had previously been married to Mr Northmore’s mother, but by 1995 was divorced from her.
5. P married C in June 1995. They separated in the following year and P commenced divorce proceedings in October 1996.
6. In April 1997, P requested the return of his marriage certificate from the court because he no longer wanted a divorce. In May 1998, P again initiated divorce proceedings. In January 1999, both P and C requested the dismissal of the original petition for divorce in order to submit a new petition on the grounds of a two year separation.
7. Solicitors acting for Mr Northmore have submitted two unsigned letters from P, dated 4 May 1999 (to C) and 18 May 1999 (to Worthing County Court). In his letter to C, P asked that she submit a decree nisi form within seven days. He said that, otherwise, he would submit his own petition. His letter to the court enclosed his petition and said that he was submitting it because C had not replied to his earlier letter.
8. In 1998, P brought a transfer value into the Scheme from a previous occupational pension scheme. The amount transferred was £74,367 of which £9,289 related to contracted out Protected Rights. The transfer form completed by P in July 1998 included a section entitled, ‘Death Benefit Nomination’. It stated,
“I wish the Scheme Administrator to pay any lump sum benefit to the beneficiaries and in the proportions set out below. I understand that the Scheme Administrator has absolute discretion as to which of the beneficiaries (if any) it chooses. This nomination is only an expression of my wishes.”
P named Mr Northmore as the beneficiary, to receive 100% of the lump sum benefit.
9. In November 1998, P completed a Scottish Equitable Death Benefit Nomination Form, requesting that 50% of the benefits should be paid to K, his fiancée at that time, and 50% to Mr Northmore. In January 1999, P completed a fresh Nomination Form requesting that 80% of the benefits should be payable to Mr Northmore and 20% to his first wife. Both Nomination forms included the pre-printed instruction,
“In the event of my death I would like any lump sum benefit due under the scheme rules to be applied for the benefit of the following person(s) in the proportions shown: [the names and proportions then followed as described]”.
They also contained the words,
“I understand that I cannot control the payment of any such benefit through my Will or any other document and that the above request is only an expression of my wishes which is not binding on the Scheme administrator.”
10. In January 1999, P also completed an “Expression of Wish” form addressed to “the Trustees of: European Aviation Death in Service Benefit”. In response to the statement, “I would like the benefits of my Death in Service Scheme to be paid to the following people, I am also detailing the proportion”, P nominated Mr Northmore to receive 60% and his father to receive 40%.
11. P made a will in May 1999; the details are not relevant save that no provision was made in the will for C. The divorce proceedings had not progressed.
12. P died on 18 June 1999, still married to C, who had attained the age of 45 in February that year. On 19 June 1999, Mr Northmore turned 14.
13. Scottish Equitable came to consider how to distribute P’s benefits under the Scheme. There were three elements to those benefits:
17.1 The Protected Rights element deriving from his transfer-in;
17.2 The Non-Protected Rights element deriving from his transfer-in; and
17.3 The Non-Protected Rights element built up by regular contributions to the Scheme.
14. In October 2000, Scottish Equitable wrote to the solicitors acting for P’s estate about their proposed distribution of the benefits,
“… I confirm that a decision has been made as follows:
1. The discretionary benefits (ie the lump sum benefits) will be settled to the deceased’s estate.
2. The non-discretionary benefits (ie the qualifying widow’s pension) will be settled in accordance with current legislation governing protected rights benefits and occupational pensions scheme transfer proceeds.”
15. The estate’s solicitors queried the proposed distribution and, in December 2000, Scottish Equitable wrote again, as follows,
“I write to confirm and clarify the situation as follows:
1. The Protected Rights value of £12,382 … will be paid as a pension to Mr Northmore’s wife.
2. A Non Protected Rights [fund] of £90,567 .. will be split as follows:
(a) £65,026 will be used to purchase a pension for Mr Northmore’s wife. This is because there has been a large Transfer In to the policy in October 1998 from an Occupational policy and under Inland Revenue regulations 3/4s of this must be used to purchase a pension.
(b) £21,675 (the remaining ¼ of the Transfer in) + £3,864 (the regular contributions) equalling £25,540, the discretionary benefits, can be paid to Mr Northmore’s estate. Any decision as to who to pay the benefits to can be made by the persons named on the grant of probate ...”
16. In January 2001, Scottish Equitable paid £28,790.26 to the estate’s solicitors. Scottish Equitable said that this represented the discretionary lump sum benefits under the Scheme (including the amount from regular premiums which by then had risen to £3,885). As for the non-discretionary benefits, they said that the full value of P’s protected rights (£12,449) had to be paid to the qualifying spouse. The value of the previous transfer-in stood at £99,619, (including the protected rights element amounting to £12,449), and 25% was included in the discretionary lump sum benefit paid to the estate.
17. Scottish Equitable’s distribution of the non-protected rights death benefits arising out of the transfer-in became the subject of a previous application to this office (N00436, February 2006). They took the view that they had no discretion in the distribution of these benefits. It was determined that, whilst the protected rights element of the benefits must be distributed in the prescribed manner, there was a discretion for Scottish Equitable to exercise in the distribution of the non-protected rights element arising out of the transfer-in.
18. Following the above determination, solicitors acting for Mr Northmore wrote to Scottish Equitable asking what system they had in place for reconsidering their decision. The solicitors said that Mr Northmore would wish to make further representations and would want to comment on any representations Scottish Equitable received from C. They submitted a ring binder containing various documents, which Mr Northmore intended to rely upon. These included:
· The various petitions for divorce submitted by P between October 1996 and May 1999.
· A copy of P’s will.
· The various nomination forms completed by P.
· A document labelled “Typed up notes found with Deceased’s personal papers”.
19. Scottish Equitable wrote to Mr Northmore’s solicitors, on 16 March 2006, asking them to arrange for the completion of a “Dependant’s Form” and to provide:
· Details of Mr Northmore’s financial position at the date of his father’s death and any material changes since;
· Details of any settlement received by Mr Northmore from his father’s estate, not including benefits under the Policy; and
· Mr Northmore’s current health and personal circumstances, including details of any employment.
20. In response, Mr Northmore’s solicitors said:
· Mr Northmore wished to see any representations made by C because, in the past, they had not been accurate.
· The documentation concerning the divorce, which they had submitted to Scottish Equitable, indicated that it did not go ahead because C would not sign the appropriate papers and “was trying to lever a financial settlement from the deceased”.
· P had stated that C would not live with him and he had bought his own property in March 1998. He lived separate and apart from C.
· Had Scottish Equitable used their discretion at the appropriate time, Mr Northmore would have been 14 years of age, would have had no savings of his own and would have been dependent upon his mother and P.
· C was not maintained by P and they effectively lived separate lives.
· Mr Northmore remained in full-time education until July 2004. He had taken a part-time job with a supermarket whilst at college to assist in maintaining himself.
· He had subsequently obtained employment on a salary of £10-11,000 p.a.
· He currently earned £12,200 p.a., had no savings and was living with his mother.
· Including the death in service benefit, he would receive £140,000 (net of costs) from his father’s estate.
· He was in good health, single and had no current intention to marry or cohabit.
21. Scottish Equitable sought further clarification as to the sum of £140,000 quoted by Mr Northmore’s solicitors. They asked if this included only the death in service benefit already paid to the estate from the Policy and whether it had been, or when it would be, paid to Mr Northmore. Scottish Equitable also asked if the estate had made any settlement to C.
22. In response, Mr Northmore’s solicitors stated that the £140,000 did not include the amount already paid to the estate from the Policy and had not yet been paid to him. They expressed concern about Scottish Equitable’s query about a settlement with C and said that, had Scottish Equitable exercised their discretion at the time of P’s death, any settlement with C could have been dealt with in the light of such discretion. The solicitors went on to say:
“It is true that [C] has made an application … pursuant to the Inheritance (Provision for Family and Dependants) Act 1975 and the case has been provisionally settled on the basis of a lump sum payment to her of £3,000 which was the lowest possible lump sum that could be paid to her without the Estate being liable for her costs. We can indicate that that settlement was made on a commercial basis rather than on the basis of any entitlement because of the impact of costs which were likely to be recovered. [C] stipulated that that settlement would only hold good if provision made by Scottish Equitable in respect of the pension policy was upheld.
We believe that the exercise of your company’s discretion should not take into account any prospective claim by [C] because that is irrelevant entirely a matter between the Estate and her and that should not cloud the exercise of the discretion.
We can tell you that, by way of example, had the totality of the pension been given to [Mr Northmore] then it would still have been the Estate’s position that [C] was not entitled to any substantive payment because of all the matters we raised with you … but again a small “nuisance value” settlement may have been contemplated …”
23. The solicitors again mentioned that Mr Northmore wished to be given the opportunity to comment on any representations made by C. They said that he would be willing to attend a mediation meeting between Scottish Equitable, C’s representatives and themselves.
24. Scottish Equitable had also written to C’s solicitors on 16 March 2006, asking them to arrange for the completion of a “Dependant’s Form” and to provide:
· Details of C’s financial position at the date of P’s death and any material changes since;
· Details of any settlement received by C from the estate, not including benefits under the Policy; and
· C’s current health and personal circumstances, including details of any employment.
25. C completed the dependant’s form on 22 March 2006. She stated that she was the widow of the deceased and gave Mr Northmore’s details in the section for children of the deceased. In their covering letter, C’s solicitors said: